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All networking functions work outgoing. However no one can ping the machine, nor can they access shred folders.

When I ping -t the machine from another, and restart the affected machine, the ping is retuened as the machine is starting. As soon as the Windows logon screen shows up on the affected machine, the pings are no longer returned. So some service or virus is preventing networking from running correctly.

Late last night discovered hundreds of added <file.sys> references in various place in the registry (very random file names). For example, in HKLM, System, CurrentControlSet, Services, I see a key called kzbkarwo, which calls kzbkarwo.sys from the Windows\System32\drivers folder. And there are hundreds of others just like it.

This in combination with the event log filled with errors of suspicious services unable to start due to missing modules, *and* the fact that there was a service called WindowsLon (not even present in a Google search!) tells me that the best thing for me to do is reinstall the OS.

Safe mode network behaves in the same way? Get the autoruns tools from Sysinternals and go to into the drivers tab and deselect all the driver suspicious drivers and third party drivers on the server. And disable the third party services. Reboot the machine and see if you are able to fetch some performance back.

Mbam found the virus. Unfortunately, removing it did not solve the access problem. I therefore ran my Win7 install DVD and selected "upgrade" and it basically did an in-place install, which restored networking fine.